Posted on 08/03/2006 9:28:46 AM PDT by Cagey
SEATTLE — Starbucks Corp. shares sank nearly 10 percent Thursday, a day after the coffee retailer said it was retooling some store operations to improve service in the wake of slower sales growth in July.
July sales grew at the slowest pace in nearly five years, and executives blamed unexpectedly high demand for Frappuccinos and other frozen blended beverages in the peak morning hours of what's been a steamy summer for much of the nation. Normally, Starbucks' baristas crank out more hot espresso drinks, at a quicker pace.
"While this is an issue, and we're working on it, and we're going to get it solved, it perhaps doesn't quite deserve the focus it's been getting" from analysts, Chief Financial Officer Michael Casey said Wednesday on a conference call in which executives sought to trumpet their profits and expansion over the sales issue.
Chief Executive Jim Donald said the company was working to solve the problem by having more baristas work the morning peak hours, among other possible changes, including reducing the time it takes to blend cold drinks.
But investors sent Starbucks shares down $3.27 to $30.03 in midday trading Thursday on the Nasdaq Stock Market, erasing almost all their gains since the start of the year.
Comparable-store sales for July grew at 4 percent, the lowest rate the company had seen since December 2001, down from 7 percent a year ago. Executives said they expect comparable-store sales to range from 3 percent to 7 percent for the remainder of fiscal 2006 and 2007.
Despite the operations issues, Seattle-based Starbucks said profits rose 16 percent.
For the 13 weeks ended July 2, Starbucks had net income of $145.5 million, or 18 cents per share, up from $125.5 million, or 16 cents a share, in the same period a year earlier. Revenue for the latest quarter increased to $1.96 billion, up from $1.6 billion last year.
Excluding a 1 cent tax benefit, Starbucks' income was in line with the 17 cents per share forecast among analysts surveyed by Thomson Financial.
Sharon Zackfia, an analyst with William Blair & Co. LLC, suggested the market was overreacting to Starbucks' comparable-store sales figures. "There wasn't really anything else you could pick at," she said. "I think the market is skittish, period, when it comes to retail stocks right now."
Casey said the company saw signs of the cold-drink service slow-down as early as April, "but quite honestly, we didn't recognize it because we didn't look hard enough until we basically got into July and started to do the analysis."
"Had we known I think we could've done better training and better deployment to have avoided it. ... We wish we had the benefit of hindsight," he added.
Rather than comparable-store sales, Starbucks Chairman Howard Schultz urged analysts to focus on the earnings increase, its plans to expand into Brazil later this calendar year, India and Russia next year, and boost new-store openings to 2,000 worldwide in fiscal 2006 _ up from 1,800 as previously forecast _ and 2,400 in fiscal 2007.
The company held fast to its previous guidance for earnings of 16 to 17 cents a share for its fourth fiscal quarter and 71 to 72 cents per share for fiscal 2006. It set its fiscal 2007 earnings target at 87 cents to 89 cents.
As of July 30, Starbucks had 11,946 stores in 37 countries. It opened 559 stores in the latest quarter, 395 of them in the United States and 164 internationally.
However, I ordered a frozen something or other at Baskin Robbins the other day and it took ten minutes for the clerk to prepare the drink.
Since I was the only one at the counter it wasn't a problem but I can't imagine people actually waiting in line all that time for a frozen frappachino.
I suspect the increase in "similar store sales" of 4% is a disappointment to analysts.
Precisely.
Some people think a good entry point is in the high 20's...if it trades there.
Saying that, I don't know if it is fresh-brewed, but it does not taste canned.
I like their coffee, it's the weirdo "Baristas" they employ that makes me hesitant to stop by. Even the title "Barista" is whacky. They're coffee servers!
In the lamestream media, lower than expected profit growth is a drop in profits, and a cut in the rate of growth in government spending is actually "downsizing" of government.
Starbucks is still financially healthy and growing regardless of the misleading headline.
Starbucks is Sharing a Sink with whom? Who writes these headlines, Sylvestor the Cat? "Tharbucks Thares Think as Thales Thhhputter."
(satire on) This may be in response to a chain of stores, called BuckStars, which sells coffee for $15 a cup. BuckStars will own the market until some genius starts selling coffee for $30 per cup. (satire off)
Possibly but they have missed some of the analysts estimates which probably isn't tragic in itself. Still Starbucks has been pretty smart in selling a "concept" rather than just drinks so I expect they will shift their marketing as a younger generation of "drinkers" come along.
http://biz.yahoo.com/ft/060803/fto080320061034282986.html?.v=1
In other news, Pet Rock sales are declining.
Have you ever drank it. The reason I ask is because the person you replied to said it was nasty tasting and then you said I wouldn't drink that if you gave it to me for free. I was just curious. I have had it before but only in the packages that you make at home. It is ok, but nothing spectacular. However, their frapacchinos are very good. Just my opinion of course.
It's like watching a slow motion replay just waiting for your coffee. I'll occasionally stop into a WaWa and make my own. Have you been into one of the newer WaWa's yet? They have about twenty different types of coffees to choose from.
Just put megadoses of caffeine in all of your food, Mr. Starbucks, you'll
have everybody at your store, slobbering for the chance
to pay you 3-5 bucks for a snack.
Last time I checked a Vivarin tablet had 100mg of caffeine
in it.
Take one tablet, drink a glass of orange, or grape, or
apple juice. There, you have your brain wake up call, and
lots of good antioxidants. lots cheaper than starbucks.
Starbucks is a total rip-off, like most every snack sold
in the good ol' USA.
If you want to make a good Snapple imitation...do this
...
Brew some tea. Sweeten it to taste with sugar, or honey, or
sugar substitute, add lemon juice to taste. Then,
for each 3 parts of tea, add 1 part of apple juice, or
some prefer 4 parts tea, 1 part apple juice...pour over ice
Taste fresh, and is delicious (IMHO)...
time we got a little self-reliant here...
It takes less time to do the above, then it does to work,
get your money, drive to the store and pay for the above.
Too many stores IMO. I just spent 4 days in New York City and I could not believe how many Starbucks there are all over Manhattan. I didn't see many people in any of them either. That is some pricey real estate, and I can't believe that even in Manhattan they can sell enough coffee to pay those rents. And I found the coffee at Guy and Gallard better and less expensive because you serve yourself. It's hard to get a bad cup of coffee in New York, so why would anyone pay $3 for a Starbucks?
Yep, the first time I had it was at Detroit Metro Airport while waiting for a flight. It was hideous but I figured maybe it was just that location so I tried it again not too long ago. Same thing. I've never had a frappachino, I pretty much just stick to regular coffee.
I don't drink coffee but I have met people there so I order the iced tea if its warm out, and they have the best hot chocolate I have ever had if its cold out.
I drink black coffee. By the time my bucket-size container of Starbucks coffee has cooled enough to sip, my friends have finished their frothy cappucinos, etc. and are ready to leave. I'm not into drinking coffee in cars, so I rarely have enough to know how it tastes.
The packaged coffee sold in supermarkets is not very good compared to specialty store varieties at the same price or less.
It totally amazes me. I was having coffee and a bagel in a microscopic sized coffee shop on west 47th Street recently and the fellow I was with lives in that neighborhood and said the guy pays $6000 per month rent. I swear, the place no bigger than 500 square feet!
No Starbucks here!
I usually make my own hot chocolate, but I do like Starbucks Gingerbread Mocha. I like Joe Muggs better, but they could not get it last year because Starbucks had it.
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